In the News: Milk Supply Commentary

Written By

Helen Labun

Written on

August 13 , 2018

Vermont Public Radio ran a story on the current dairy crisis ahead of a big meeting today in Albany to discuss options for supply management. The short version: we’re in an unusually long period of very low milk prices, and an over-supply of milk implies that won’t change soon. So, is there something we should do about that supply issue?

An important point that gets a bit glossed over in the VPR piece isn’t just what we might want to do, but what we’re allowed to do.

Any supply management is a form of price manipulation, and that hits some rough legal and political waters. Prices are allowed to be manipulated. Maine, cited in the piece, controls prices at producer, processor, and retail levels. Maine benefits from having started their system in 1937. Maine also has producers, processors, and major consumer markets all within state boundaries - Vermont is significantly weighted to the producer side of that equation. At any link in the chain from farm to consumer, Vermont loses power because we can’t control prices across state borders without Congressional approval, not even if the neighboring state agrees. That law is why we had, and subsequently lost, the Northeast Interstate Dairy Compact; Congress allowed the New England states to work together to set a price floor, then withdrew authorization.

Dairy cooperatives have more leeway than state governments -- they aren’t regulating interstate trade, they’re just deciding what milk to buy. There are examples of cooperative-led supply management via base-excess programs working in the Midwest, including from Land O’Lakes, owner of Vermont Creamery. Base-excess pays farms based on their previous average production. The co-op pays full price up to the base amount, then either won’t purchase, or will purchase at a much lower price, milk beyond a farm’s historic output. It’s usually short term, not a cap on all future expansion.

Embarking on this type of program isn’t as simple as management saying “let’s do this.” Dairy cooperatives exist for the mutual benefit of their members and so members need to agree that they will collectively benefit from curbing supply increases. If you need more cash flow today to keep afloat to see any supply management benefits tomorrow, or don’t want one more set of rules dictating what you can and can’t do on your own farm, or simply don’t believe supply management will work, it can be difficult to sign on to the concept. You can see Wisconsin working over time to get this sort of accord going among their dairy farmers.

Also, agricultural co-ops aren’t exempt from antitrust laws that prevent market manipulation. They do have special rules. They can act as if they are one entity, as opposed to many individual farms getting together to manipulate markets, but that entity can’t then act illegally. For example, the nation’s cooperatives could not create a de facto national supply management system by working in concert to control milk supply. We don’t know what the current USDA will perceive as overstepping in this regard (presumably everyone coming together to create a renegade national policy would be considered an overreach).

It’s a heavy lift in any direction. Even if we reach agreement on which of the limited options to try, and a plan successfully implemented, the available fixes are, by and large, temporary. If they aren’t, then they truly are calling into question the rules that say who can dictate dairy (or any other agricultural) policy for the country. Do we want to work our way around the laws to band together into a Northeastern alliance that stands for prices that meet Northeastern needs? Possibly. Do we want the much larger Midwestern or Western production regions to do the same thing to ensure their needs prevail instead? Not really. However hard won any supply management outcome will be right now, it’s only the first step in finding a real strategy for the future.

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About the Author

Helen Labun spent many years contributing articles to Local Banquet, and she is now Local Banquet's publisher from her home in East Montpelier. Are you interested in writing about Vermont agriculture for LB? Email us localbanquet@gmail.com

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